Ministry sources said the government has already outlined a plan in its medium-term export strategy.

"The medium-term export strategy has clearly stated that better performance from the leather industry will come only after it is modernised and brought up to international level. However, that will require extensive investment. The government is thinking of floating a modernisation fund for the industry," sources said.

The government plans to modernise the entire leather industry -- including the small and medium tanneries -- in accordance with the recommendations of the Central Leather Research Institute (CLRI).

Modernisation has become imperative after the international community banned the use of penta cholorophenol and acryl dyes in tanneries. In India too, the SupremeCourt has ordered that tanneries, mostly in the unorganised and small-scale sectors, be closed and common plants set up to treat their effluents.

Sources said the CLRI-recommended modernisation fund will be of a little over Rs 1000 crore.

"Apart from outlining steps to improve the tanneries, the plan states that new plant layouts will be worked out, sewerage systems upgraded and cleaner, eco-friendly systems will be introduced in the industry," they said.

The commerce ministry is yet to announce the details of the fund.

"We do not know who will fund this corpus and how it will be handled. But we do have a feeling that state governments and private organisations will be roped in," sources added.

Meanwhile leather units, the majority of which belong in the small and medium-scale sectors, have sought a hike in investment limits.

"To upgrade the existing infrastructure of the leather industry huge investments are necessary. For that the present investment limit of Rs 60 lakh is not enough, We want itincreased to Rs 5 crore. This will also help us to achieve the economies of scale," an industry source said.

Rakesh Shah, the eastern region chairman of the Federation of Indian Export Organisations (FIEO), suggested that the footwear sector be thrown open. He said in a FIEO study that de-reservation of the sector will help indigenous manufacturers.

"The footwear sector along with a few others are not attracting enough investments because there are some inherent problems. Foreign direct investment must be allowed along with an export obligation of 50 per cent," he said.

Shah further stated that setting up of footwear components parks in major leather producing centres will increase the availability of quality components and this will help the footwear sector.

FIEO has also urged the government to work out a detailed export-import policy for the leather industry before it is thrown open.

The FIEO study states that as per the recommendations of the World Trade Organisation, the leather industry has tobe opened up and before that is done a well though out policy for integrating exports and imports of leather goods has to be outlined.

This is necessary as the range of items to be traded will vary from raw hides & skins and finished leather to components and chemicals, it states.